The Washington Post reports that the Mortgage Bankers Association (MBA) is getting what it feels is a raw deal on a mortgage for its Washington headquarters. Boo hoo! The MBA is buying a building there for $100 million, but is paying a higher interest rate on its mortgage as its income declines and the leasing market is slow leaving it with no tenants for the building.

This couldn't have happened to a nicer association. After all, the MBA encouraged people to take out subprime mortgages -- many of which went bad. Despite the Fed's rate cuts from 5.25% to 2.25% mortgage interest rates are up thanks to bankers' fear of lending. And the resulting economic slowdown is making it harder for the MBA to find tenants for its building.

Let's survey the damage to the MBA. First, its membership has declined 17% in the last year and it predicts a 10% to 15% decline in revenue as a result. Bankers are making the MBA put up about 10% more of a down payment than it had planned and the lack of tenants has moved its lender to increase the financing costs slightly. Perhaps there's justice in the universe. If not, at least MBA's predicament is giving it a taste of its own medicine.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter.

Readers of this space know that my investment bias is toward large-cap companies with demonstrated business models and a competitive advantage in established markets, preferably with a favorable global trend as a support. With the above in mind, U.S. Steel is worth a review.

U.S. Steel Group (NYSE: X) is the fifth largest steel producer in the world.

Analysts expect U.S. Steel's 2008 revenue to increase 13-17%, primarily stemming from acquisitions. Further, distributor inventory levels reached unsustainably low levels in 2007, in the interpretation of many analysts, and the replenishing in 2008 should benefit X.

Meanwhile, oil producer country tube/tube-related products should remain strong, and additional steel sector consolidation should help the sector regain modest pricing power. The Reuters F2008/F2009 EPS consensus estimates for X are $10.87/$11.52.

The risks? Analysts remain concerned about rising raw material costs. A sustained global economic slowdown would hurt U.S. Steel's results.

The First Call mean rating for X is: Buy [15 firms]. Mean 2008 target: $119 [high: $134, low: $90].

Stock Analysis: U.S. Steel is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than two years should be rewarded from X's shares. Note: A safer position would involve waiting for X's shares to pull back to the $110-115 range, but they may not retreat to that level. I'd consider a Sell / Stop Loss at $83.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Commercial real estate developers are no longer immune to the credit crunch hitting residential real estate owners and developers, according to today's Wall Street Journal. Yesterday in visible proof of the problem, a Las Vegas casino developer, Bruce Eichner, defaulted on a $750 million loan from Deutsche Bank because he was not able to refinance the debt. It's not the first time he's been caught up in a credit crunch. The Journal reports he lost several projects in New York City during its real estate downturn in the early 1990s.

The Journal also points out he's not the only one having trouble getting refinancing. Other commercial developers in trouble according to the Journal include:

• A major Australian shopping mall developer, one of the largest owners of shopping centers in the U.S., has been unable to refinance $3.4 billion in short-term debt.

• New York developer Harry Macklowe, who bought office buildings at the top of the commercial real estate market, can't refinance $7 billion in debt that's due in February. He's trying to sell his General Motors Building in midtown Manhattan to come up with cash.

Office vacancy rates rose [subscription required] nationally for the first time in four years in Q4 2007, The Wall Street Journal reported Monday.

Citing data provided by Reis Inc., a New York real estate research firm, The Journal reported that the addition of an unusually large amount of new space and tenants shying away from lease signings pushed the national vacancy rate to 12.6% in Q4 2007 from 12.5% in Q3 2007.

The survey indicated that the increase came after 16 consecutive quarterly vacancy rate declines and also noted that the subprime mortgage-affected West (Los Angeles) and South (Fort Lauderdale, Fla.) saw vacancy increases of 1.9 and 1.7 percentage points, respectively.

Economic Analysis: The pertinent information here is not the size of the vacancy increase, but the fact that the office vacancy rate rose. While qualifying the above by noting that it's only one quarter -- and one quarter does not a trend make -- the vacancy rate increase, when viewed against a backdrop of other sluggish / sub-par data on residential housing, corporate profits, job creation, retail sales and consumer confidence, paints a decidedly modest economic picture. It's another data point that suggests that the U.S. economy is already in slow-growth mode, or perhaps worse.

Aluminum Corp of China (NYSE: ACH) volume & volatility spikes on wide price swings. ACH is engaged in bauxite mining, alumina refining and aluminum smelting. ACH is recently up $10.73 to $64.81. ACH closed at $37.04 on 8/16/07. ACH call option volume of 6,490 contracts compares to put volume of 4,671 contracts. ACH September option implied volatility of 88 is above its 26-week average of 47 according to Track Data, suggesting larger price risk.

Open Text (NASDAQ: OTEX) volatility Elevated at 80 into 8/30 EPS & Outlook. OTEX develops, markets, sells, and supports enterprise content management solutions. OTEX is recently down $0.29 to $19.98. OTEX will report EPS on August 30th. Canaccord Adams says: :We maintain our Hold recommendation and U.S. $18 target based on our Discounted Cash Flow analysis." OTEX September option implied volatility of 80 is above its 26-week average of 50 according to Track Data, suggesting larger risk.

Corus (NASDAQ: CORS) volatility elevated on exposure to commercial real estate. CORS is an active commercial real estate lender nationwide, specializing in condominium, hotel, office and apartment loans. CORS had outstanding commercial real estate loans and construction commitments of $8 billion as of 6/30/07. CORS over all option implied volatility of 60 is above its 26-week average of 49 according to Track Data, suggesting larger risk.

Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.

For the past couple of months I have written a lot about the weak real estate market, almost all of which has been negative, but don't tell that to Somerset Partners LLC. It was announced today by the Wall Street Journal (subscription required) that the New York-based private-equity firm won the bidding on an office building in New York City that represents that highest per square foot price of any building in the history of the country!

The property in question is located at 450 Park Ave. and went for a whopping $510 million dollars. If you were to break that price tag down to a per square foot basis you are talking about $1,589 a square foot. Not too shabby in a country with a weak real estate market.

The building last changed hands back in 2002 when the price went for $492 a square foot for a total cost basis of around $158 million. Not a bad investment to say the least. We are talking about a $352 million profit over the last five years, representing a little over a 222% percent change! Not too shabby at all.

With prices falling for the housing market, many analysts had been expecting that the trend would carry over into high-end office developments as well. This just does not seem to be the case. The previous record for the most expensive per square foot office buildings was set just a month ago when Italian based Gruppo Zunino agreed to pay $1,476 a square foot for New York's 660 Madison Ave.

Microsoft has said it will spend $2 billion on new technologies to combat the threat of Google, Yahoo!, eBay and the like. Which to shareholders means operating expense, to Google means let's throw a hundred products against the wall to see what sticks, and to college grads means money money money. But to Redmond, Washington?

It means cranes, concrete, and an "eye-popping" real estate market. A company headquarters that now employs 30,000 people could add 12,000 in the next two years -- 3.1 million square feet, or 14 new buildings to be constructed. As the New York Times points out, for Seattle "those are staggering numbers."

Seattle may be happy, or not. On one hand, the unemployment rate will certainly decrease if Microsoft is going new-hire crazy. On the other hand, the city is already clogged with traffic and real estate prices are ridiculous for the relatively small market.

[Photo OsakaSteve]